The chairman of one of the nation's largest homebuilders is calling for the government to temporarily lower all mortgage rates to 3 percent.
Without buyers, the rate of new home sales is unlikely to ascend from its current level of just above 450,000 units a year, down from 1.2 million units three years ago, Ara Hovnanian, chairman and CEO of K. Hovnanian Homes, told Bloomberg TV.
To stimulate home sales, the federal government should require mortgage interest rates to be lowered, across the board, so that everyone can afford the payments, Hovnanian says.
“Housing is at the center of this crisis," he says.
"A lot of focus has been on foreclosures. But that is not going to solve the problem. There is a problem of supply and demand. Supply will be out of balance until we can stimulate demand."
There is a model to stimulate housing demand — a Keynesian policy implemented during the Ford Administration, Hovnanian says.
"If you go back to 1975, there was a six-quarter recession," Hovnanian says.
"Housing starts went down. We're proposing a temporary, 30 year, fixed-rate mortgage at 3 percent. That would be for next year. The rate would go up to 4 percent in 2010."
Hovnanian also would like to see a tax credit for homeowners to help with down payment on a home if they have lost equity in their current home and have lost the ability to finance a new purchase from their old property.
Not everyone agrees with this collectivist-style call for uniform mortgage interest rates for all. Mortgage rates differ because different individuals present distinct risk factors to bankers.
Jean-Claude Trichet, president of the European Central Bank, writes in the Financial Times that the "root cause" of the financial crisis which started in 2007, after years of financial stability under Presidents ranging from Clinton to Bush, was the "widespread undervaluation of risk."
"This included an underpricing of the unit of risk and an underassessment of the quantity of risk financial operators took upon themselves," Trichet writes.
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